UPREIT (721 Exchange)
DST to UPREIT Options to Satisfy your 1031 Tax Deferral
UPREIT (721 Exchange) Overview
Defer Capital Gains Tax with a 721 Exchange
An UPREIT (721 Exchange) may be a strategic solution for investors seeking to defer capital gains taxes while transitioning into diversified, institutional-quality real estate investments. Often viewed as an alternative or complementary strategy to a traditional 1031 Exchange, a 721 UPREIT Exchange can offer additional flexibility depending on an investor’s long-term objectives, liquidity preferences, and estate planning goals. While all investments carry risk, a properly structured UPREIT strategy may provide greater diversification and potential liquidity advantages over time.
Our team assists investors in evaluating 721 exchange strategies and other alternative real estate investment solutions. We are available to answer questions, review available opportunities, and help determine whether a 721 UPREIT Exchange aligns with your investment objectives, tax-deferral strategy, and overall financial goals.
Contact us and a 721 UPREIT specialist will help guide you through the 721 UPREIT market and find you the most suitable options for your 1031 exchange.
721 UPREIT Solution
Learn more about the benefits of 721 UPREIT exchanges, 721 exchange FAQs, videos and 721 UPRIET resources on our site 721 UPREIT Solution.
18 Years
EXPERIENCE IN 721 UPREIT TRANSACTIONS
What is an UPREIT?
An UPREIT (721 Exchange) allows investors to defer capital gains taxes, which can otherwise significantly reduce the profits of a real estate property sale.
An 721 exchange is a type of real estate transaction in which an investor contributes property to an Umbrella Partnership Real Estate Investment Trust (UPREIT) and, in return, receives operating partnership units that represent an equity interest in the REIT structure. This approach can allow investors to defer capital gains taxes that would otherwise be triggered by a sale, while also providing the potential to benefit from ongoing distributions generated by the UPREIT. Investors are encouraged to evaluate the transaction thoroughly to ensure it fits their goals and broader investment strategy.
In most cases, taxes are not recognized until the investor chooses to redeem their partnership units, which may be done either in a single transaction or gradually over time. A phased redemption approach can provide additional planning flexibility and may help investors manage their tax exposure, particularly if future redemptions occur during years with lower taxable income.
In the meantime, investors may receive ongoing distributions from their UPREIT units and potentially benefit from other strategic advantages associated with a 721 exchange.
How Does a UPREIT Work?
Under Internal Revenue Code Section 721, the contribution of property to a partnership in exchange for partnership interests is generally treated as a non-recognized transaction, meaning no immediate gain or loss is recorded at the time of transfer. As a result, a properly structured 721 exchange (UPREIT) typically does not create an immediate taxable event, allowing investors to defer capital gains taxes that might otherwise be due upon the sale of the property.
The 721 exchange process typically follows these steps:
STEP 1
The investor contributes their relinquished property to the umbrella partnership, also called the operating partnership (OP), of an UPREIT.
STEP 2
The property contributor receives units of interest in the umbrella partnership and becomes a unitholder.
STEP 3
The OP maintains ownership of the properties and distributes the income to the unitholders.
STEP 4
OP unitholders may choose to exchange OP units for REIT shares, which could be more easily sold.
Understanding 721 UPREITs and 1031 Exchanges
For investors considering a tax deferred exchange, a 721 exchange may be an appropriate allocation to consider.
The 721 UPREIT options from Corcapa 1031 Advisors offer many benefits including tax deferral, income & diversification, and potential liquidity.
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